An Overview of Chapter 13 Bankruptcy
The basic steps involved in a typical Chapter 13 bankruptcy case.
Chapter 13 bankruptcy, sometimes called reorganization bankruptcy, is quite different from Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, most of your debts are wiped out; in exchange, you must relinquish any property that isn’t exempt from seizure by your creditors. In a Chapter 13 bankruptcy, you don’t have to hand over any property, but you must use your income to pay some or all of what you owe to your creditors over time — from three to five years, depending on the size of your debts and income.
Chapter 13 Eligibility
Chapter 13 bankruptcy isn’t for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you’ll have to prove to the court that you can afford to meet your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.
If your total debt burden is too high, you are also ineligible. Your secured debts cannot exceed $1,580,125, and your unsecured debts cannot be more than $526,700. A “secured debt” is one that gives a creditor the right to take a specific item of property (such as your house or car) if you don’t pay the debt. An “unsecured debt” (such as a credit card or medical bill) doesn’t give the creditor this right.
The Chapter 13 Process
Before you can file for bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee’s office. (For a list of approved agencies, go to the Trustee’s website at www.usdoj.gov/ust and click “Credit Counseling and Debtor Education.”) These agencies are allowed to charge a fee for their services, but they must provide counseling for free or at reduced rates if you cannot afford to pay.
In addition, you’ll have to pay the filing fee, which is currently $313, and file numerous forms. Of course, if you choose to work with Nicole Anderson Law on filing your Chapter 13 Bankruptcy we will help you through each step of the process. For a free initial consultation, click here.
The Chapter 13 Repayment Plan
The most important part of your Chapter 13 paperwork will be a repayment plan. Your repayment plan will describe in detail how (and how much) you will pay each of your debts. There is no official form for the plan, but many courts have designed their own forms.
How Much You Must Pay
Your Chapter 13 plan must pay certain debts in full. These debts are called “priority debts,” because they’re considered sufficiently important to jump to the head of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax obligations.
In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages on the debts (the amount by which you’ve fallen behind in your payments).
The plan must show that any disposable income you have left after making these required payments will go towards repaying your unsecured debts, such as credit card or medical bills. You don’t have to repay these debts in full (or at all, in some cases). You just have to show that you are putting any remaining income towards their repayment.
How Long Your Repayment Plan Will Last
The length of your repayment plan depends on how much you earn and how much you owe. If your average monthly income over the six months prior to the date you filed for bankruptcy is more than the median income for your state, you’ll have to propose a five-year plan. If your income is lower than the median, you may propose a three-year plan. (To get the median income figures for your state, go to the United States Trustee’s website, www.usdoj.gov/ust, and click “Means Testing Information.”)
No matter how much you earn, your plan will end if you repay all of your debts in full, even if you have not yet reached the three- or five-year mark.
If You Can’t Make Plan Payments
If for some reason you cannot finish a Chapter 13 repayment plan — for example, you lose your job six months into the plan and can’t keep up the payments — the bankruptcy trustee may modify your plan, or the court might let you discharge your debts on the basis of hardship. Examples of hardship would be a sudden plant closing in a one-factory town or a debilitating illness.
If the bankruptcy court won’t let you modify your plan or give you a hardship discharge, you might be able to convert to a Chapter 7 bankruptcy or ask the bankruptcy court to dismiss your Chapter 13 bankruptcy case (you would still owe your debts, plus any interest creditors did not charge while your Chapter 13 case was pending). For information on your alternatives in this situation, see Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, by Stephen Elias and Robin Leonard (Nolo).
How a Chapter 13 Case Ends
Once you complete your repayment plan, all remaining debts that are eligible for discharge will be wiped out. Before you can receive a discharge, you must show the court that you are current on your child support and/or alimony obligations and that you have completed a budget counseling course with an agency approved by the United States Trustee.
For more information, take advantage of a free intial consultation with the experienced Minnesota bankruptcy lawyers at Nicole Anderson Law, LLC. You can arrange a meeting or have your questions answered by calling 651-464-8510 or contact us via email.33
Common Questions About Chapter 13 Bankruptcy in Minnesota
Can Chapter 13 bankruptcy stop foreclosure on my home in Minnesota?
Chapter 13 bankruptcy may help stop a mortgage foreclosure and give you an opportunity to catch up on missed payments over time. Filing generally activates an automatic stay that temporarily stops most collection actions, including foreclosure proceedings. A Chapter 13 repayment plan can allow you to pay overdue mortgage amounts over three to five years while maintaining your ongoing mortgage obligations. However, timing matters, and filing may not save a home if the foreclosure process has already progressed too far. If you’re facing foreclosure in Minnesota, it’s important to speak with an attorney as soon as possible.
Can I keep my car if I'm behind on payments and file Chapter 13?
Chapter 13 bankruptcy can be especially helpful for people who have fallen behind on their car payments but need their vehicles for work, family responsibilities, or everyday transportation. In many cases, overdue vehicle payments can be addressed through a Chapter 13 repayment plan. Filing bankruptcy may also temporarily prevent repossession through the automatic stay. Depending on the loan and your circumstances, Chapter 13 may provide additional options for managing vehicle debt. Nicole can explain how your particular loan would be treated and what you would need to do to keep your car.
How much will my monthly Chapter 13 bankruptcy payment be?
There is no single monthly payment amount that applies to everyone filing Chapter 13 bankruptcy. Your repayment plan is based on factors including your income, necessary living expenses, the types of debt you owe, the value of your property, and how much creditors must receive under bankruptcy law. Some people repay only a portion of their unsecured debts, while others must repay substantially more. Nicole Anderson can review your financial information and help you understand what a realistic Chapter 13 payment plan might look like before you decide whether to file.
Do I have to repay all my debts in Chapter 13 bankruptcy?
Not necessarily. Chapter 13 bankruptcy requires a court-approved repayment plan, but that does not mean every creditor must receive full payment. Certain priority obligations, including many domestic support obligations and some tax debts, generally must be paid in full. Secured debts, such as mortgages and vehicle loans, receive different treatment depending on the circumstances. Unsecured debts, including credit cards and medical bills, may receive only partial payment. Qualifying remaining balances may be discharged after you successfully complete your plan.
How long does Chapter 13 bankruptcy last in Minnesota?
Most Chapter 13 repayment plans last between three and five years. The required length generally depends on your household income compared with Minnesota’s applicable median income, along with other bankruptcy requirements. During this time, you make regular payments under a plan approved by the bankruptcy court. Once you successfully complete the plan and satisfy the other requirements for discharge, eligible remaining debts can be eliminated. Chapter 13 takes longer than Chapter 7, but it may provide greater flexibility for people who need time to catch up on important obligations.
What happens if I lose my job or can't afford my Chapter 13 payments?
Financial circumstances can change during a three-to-five-year repayment plan. If you lose your job, experience a medical emergency, or face another significant financial setback, you may have options. Depending on your situation, it may be possible to request a modification of your repayment plan, convert your case to Chapter 7, or pursue other relief. In limited circumstances, a hardship discharge may be available. Missing payments without addressing the problem can put your bankruptcy case at risk, so it’s important to contact your attorney promptly if your situation changes.
Can I file Chapter 13 bankruptcy if I earn too much money for Chapter 7?
Yes. Chapter 13 bankruptcy may be an option for people whose income makes Chapter 7 difficult or unavailable. Rather than focusing solely on whether your income is below a particular threshold, Chapter 13 requires sufficient regular income to support an appropriate repayment plan. You must also satisfy applicable debt limits and other eligibility requirements. For some Minnesotans, Chapter 13 provides a practical alternative when they have stable income but cannot manage their existing debt obligations.
Can Chapter 13 bankruptcy stop wage garnishment and collection lawsuits?
Filing Chapter 13 bankruptcy generally triggers the automatic stay, which can stop many collection activities, including wage garnishments, collection lawsuits, and creditor calls. This protection gives you an opportunity to address your debts through the bankruptcy process rather than responding to each creditor individually. Some obligations and proceedings are exceptions, and creditors may seek permission from the court to continue certain actions. Nicole can review your situation and explain which collection activities may be affected by filing.
